Historically, the methods that have been used by traders to analyze the financial markets in an effort to identify and forecast the direction of price trends have been divided into two distinct approaches: fundamental analysis and technical analysis. Fundamental analysis focuses on underlying macro- and/or micro-economic factors such as Gross National Product, central bank policies, rates of inflation, unemployment rates, market share, earnings, profitability and supply/demand. The premise behind technical analysis is that all the factors that affect a specific market at any given point in time are already built into that market's price, even if these factors are based on fundamentals or mass-psychology. Technically oriented traders concentrate on using various technical studies, indicators, and market-forecasting theories to analyze market behavior.
Traders are people who buy and sell financial instruments that are publicly traded on exchanges. Trading software applications subscribe to data from the exchanges and present it to traders, usually in the form of charts and watch lists. Traders and trading applications have come up with a variety of calculations that can be performed on electronic exchange data. Some of the more common technical indicators include trend indicators, momentum indicators, and volatility indicators. Many technical indicators, such as moving averages, attempt to filter out short-term variation in price so the underlying trend can be observed. A side effect of averaging past prices is that the indicator tends to lag behind the market. This causes the trader to respond late to market changes, resulting in lost profit opportunity and risk of increased losses.